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December 12, 2012

To Use Medicaid for LTC, Clients Give Away Wealth, Advisors Say

A Nationwide Financial survey found 42% of advisors saying their clients wanted to ‘intentionally impoverish themselves’ to qualify for Medicaid

A Nationwide Financial survey released Dec. 6 found 42% of advisors said their clients were interested in devesting themselves of their wealth, like passing their assets on to their children, in order to qualify for Medicaid.

Clients who intend on “intentionally impoverishing themselves” are taking “pretty extreme measures” to plan for long-term care, John Carter, president of Nationwide Financial, told AdvisorOne on Tuesday. “The new age of retirement planning needs to include plans for addressing out-of-pocket expenses and long-term care.” Advisors need to help their clients develop a “more holistic plan,” he added.

Harris Interactive surveyed 501 advisors on behalf of Nationwide. At least half of respondents’ clients have $250,000 or more in investable assets.

That so many people appear to be interested in giving away considerable assets in order to qualify for government assistance was surprising, Carter said; especially so in light of an earlier Nationwide survey conducted in July when pre-retirees listed maintaining control of their assets as one of their top concerns. “It’s ironic that half of advisors have clients who would give up control,” he said.

Over one-third of advisors say their clients don’t understand long-term care costs, and just 31% say their clients understand the long-term care options that are available to them. One thing clients who are thinking about “Medicaid planning” may not appreciate is just how much they have to give away to qualify.

“They have to prove they are impoverished,” Carter said. “In most states, that means they must have less than $2,000 with a five-year look-back period.” Medicaid is a useful option for the people who need it, Carter said, “but it was never intended to pay for long-term care for people who have assets.”

Giving away enough assets to become eligible won’t mean clients’ long-term care needs are covered, at least not in a way they may be satisfied with. They may find their options are more limited than they expected, Carter said. For example, for clients who want to maximize their time in their home, if they use Medicaid coverage for long-term care needs, many states don’t cover the types of care they would need, such as a home health aide.

That’s assuming they become eligible. “If you’ve given all your assets away and Medicaid deems you ineligible, it’s difficult to change your mind and get it back,” Carter pointed out.

It’s also important to recognize the effect the Affordable Care Act will have on Medicaid, Carter said. “In 2014, more Americans will be eligible for Medicaid. If this is what you get today, I can’t imagine you’ll get more [in 2014].”

But why are investors with significant assets even considering using Medicaid for long-term care coverage? Carter said it’s a combination of several factors, some of them familiar. “Corporate retirement benefits are shrinking,” he said, “and people are living longer. The cost for chronic care is rising, and families moving apart reduces the availability of home health care. Investors owe it to themselves to explore opportunities.”